Exploratory trading is a form of manipulation designed to test the market's reaction to a trade. Probing for stop orders would be one form of exploratory trading. This paper specifically investigates exploratory trading that attempts to determine whether the bid/ask spread is about to shift up or down a level.

The Top 8 HFTs Remove Liquidity 59% of the Time
the top 8:

were aggressive 59.2% by volume (the other 22 were aggressive 35.9% by volume).
grossed $793,342 per trading day.

The top HFTs probe the market by aggressively pinging order books and then analyzing market reaction: a practice that allows them to get a private glimpse of the "true" supply and demand at the expense of everyone else. Once the market direction is ascertained, these HFT aggressively remove liquidity, causing an immediate market move. Since the eMini is heavily arbitraged by SPY (which in turn is arbitraged by its many components and options), these sudden moves in the eMini will set off waves of overwhelming message traffic as traders and algos react and reprice thousands of instruments in milliseconds.

Exploratory trading is a form of manipulation designed to test the market's reaction to a trade. Probing for stop orders would be one form of exploratory trading. This paper specifically investigates exploratory trading that attempts to determine whether the bid/ask spread is about to shift up or down a level.

The Top 8 HFTs Remove Liquidity 59% of the Time
the top 8:

were aggressive 59.2% by volume (the other 22 were aggressive 35.9% by volume).
grossed $793,342 per trading day.

The top HFTs probe the market by aggressively pinging order books and then analyzing market reaction: a practice that allows them to get a private glimpse of the "true" supply and demand at the expense of everyone else. Once the market direction is ascertained, these HFT aggressively remove liquidity, causing an immediate market move. Since the eMini is heavily arbitraged by SPY (which in turn is arbitraged by its many components and options), these sudden moves in the eMini will set off waves of overwhelming message traffic as traders and algos react and reprice thousands of instruments in milliseconds.

Exploratory trading is a form of manipulation designed to test the market's reaction to a trade. Probing for stop orders would be one form of exploratory trading. This paper specifically investigates exploratory trading that attempts to determine whether the bid/ask spread is about to shift up or down a level.

The Top 8 HFTs Remove Liquidity 59% of the Time
the top 8:

were aggressive 59.2% by volume (the other 22 were aggressive 35.9% by volume).
grossed $793,342 per trading day.

The top HFTs probe the market by aggressively pinging order books and then analyzing market reaction: a practice that allows them to get a private glimpse of the "true" supply and demand at the expense of everyone else. Once the market direction is ascertained, these HFT aggressively remove liquidity, causing an immediate market move. Since the eMini is heavily arbitraged by SPY (which in turn is arbitraged by its many components and options), these sudden moves in the eMini will set off waves of overwhelming message traffic as traders and algos react and reprice thousands of instruments in milliseconds.

Exploratory trading is a form of manipulation designed to test the market's reaction to a trade. Probing for stop orders would be one form of exploratory trading. This paper specifically investigates exploratory trading that attempts to determine whether the bid/ask spread is about to shift up or down a level.

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how is this manipulation?

The Top 8 HFTs Remove Liquidity 59% of the Time
the top 8:

were aggressive 59.2% by volume (the other 22 were aggressive 35.9% by volume).
grossed $793,342 per trading day.

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on what capital? making 800k on 5BB dollar fund is under 4% return. No specifics given - number is meaningless
Moreover, who cares how much they are making - just b/c someone is making $, doesn't mean they are doing something "VERY VERY BAD". Communist drivel.

The top HFTs probe the market by aggressively pinging order books and then analyzing market reaction: a practice that allows them to get a private glimpse of the "true" supply and demand at the expense of everyone else.

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ok stop here for a second. PINGING the market - implies actually trading with the market. its not like they have a special program that can send a ping www.futuresmarket.exchage
Its an actuall legitimate buy or a sell. Which also encounters a financial risk. And trading costs.

think about it. You are about to go for a swim in a lake. U dont know the temperature of the water. you will first try with your foot, gauge the reaction of your body to the water, and then go in - if its suits you. Now imagine its not a regular lake but it could be acid, water, lava, ice whatever. aking a rational decision based on a market reaction is just plain fucking smart, no not even smart, common sense.

Once the market direction is ascertained, these HFT aggressively remove liquidity, causing an immediate market move. Since the eMini is heavily arbitraged by SPY (which in turn is arbitraged by its many components and options), these sudden moves in the eMini will set off waves of overwhelming message traffic as traders and algos react and reprice thousands of instruments in milliseconds.

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Remove liquidity. Sounds bad !!! they just buy or sell
they are not "removing liquidity" but buying or selling . This term is used by markets to determine Fee/Rebate structures for trading, but just using a bad soudning work does not make it bad.

By placing a bid and then cancelling it - is also in effect "REMOVING LIQUIDITY", so get this:

you have a bid at 10.00 of some stock.
you are watching the tape and see the stock dropping hard.
you are rethinking ur 10.00 bid
u cancel it
u removed liquidity.
(in market language u didnt, you just cancelled).
but effect is same: there is less liquidity.

How could you, you greedy asshole remove liquidity from a falling market making it worse?
You see how rediculous this sounds?

the full article is has even more twisted nonesense.
(the best is about how removing liquidity increases market data costs for everyone. but thats a whole other discussion)

Perhaps there is a misunderstanding, but I'd really love to hear the explanation for why an external academic (on internship) is allowed to view, interpret, and massage ES emini **audit** data? Was the data mining done in-house or in his POS studio in Allston with data floating around on an external drive? The implications of this are rather significant, especially when the data falls into the right hands (HFT competitor looking to climb the ranks and circumvent the aggressive liquidity taker shops). I'm sure one of these top 8 HFT are responsible for squashing the story/paper... would you want another firm to potentially reverse engineer your firm identified trades? Again, this is audit, not plain vanilla orderbook.

I'd certainly pay good $ to see 60-120 sessions of recent ES audit, if it were legal.